The dollar index (DXY00) on Friday rose by +0.37%. The dollar on Friday recovered from a 2-week low and rose moderately. The dollar strengthened Friday as stronger-than-expected US economic reports on Mar personal spending and Mar core PCE deflator were hawkish for Fed policy and may further delay rate cuts from the Fed. Also, weakness in the yen is supportive of the dollar after the yen dropped to a 34-year low against the dollar on Friday. Friday’s stock rally limited gains in the dollar as it reduced liquidity demand for the dollar.
US Mar personal spending rose +0.8% m/m, stronger than expectations of +0.6% m/m. Mar personal income rose +0.5% m/m, right on expectations.
The US Mar PCE core deflator, the Fed’s preferred inflation gauge, rose +2.8% y/y, unchanged from Feb and stronger than expectations of +2.7% y/y.
The University of Michigan US Apr consumer sentiment index was revised downward by -0.7 to 77.2, weaker than expectations of no change at 77.9. The University of Michigan US Apr 1-year inflation expectations were revised upward to +3.2% from +3.1%. The Apr 5-10 year inflation expectations were unrevised at 3.0%.
The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on April 30-May 1 and 13% for the following meeting on June 11-12.
EUR/USD (^EURUSD) on Friday fell by -0.29%. The euro on Friday fell back from a 2-week high and posted moderate losses. A stronger dollar on Friday weighed on the euro. Also, policy divergence between the Fed and ECB is weighing on the euro as Friday’s stronger-than-expected US economic news may further delay a Fed rate cut, while the ECB is expected to begin cutting interest rates in June. In addition, Friday’s news showing the Eurozone Mar M3 money supply rising more than expected is negative for the euro.
ECB Mar 1-year inflation expectations eased to +3.0% from +3.1% in Feb, the lowest in over two years. However, the Mar 3-year inflation expectations were +2.5%, unchanged from Feb and stronger than expectations of +2.4%.
Eurozone Mar M3 money supply rose +0.9% y/y, stronger than expectations of +0.6% y/y and the fastest pace of increase in 10 months.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 88% for its next meeting on June 6.
USD/JPY (^USDJPY) on Friday rose by +1.36%. The yen tumbled Friday to a 34-year low against the dollar. The yen retreated after the BOJ kept interest rates unchanged following Friday’s policy meeting and said it would maintain its pace of bond purchases. Losses in the yen accelerated after the BOJ cut its Japan 2024 GDP forecast.
The BOJ, as expected, voted 9-0 to hold its benchmark rate unchanged between 0% and 0.1% and said risks to prices skewed to the upside for fiscal 2024.
The BOJ cut its 2024 fiscal year GDP forecast to 0.8% from 1.2% in Jan and said it will maintain bond purchases at around the same pace as before. The BOJ also raised its outlook for CPI excluding fresh food for the current 2024 fiscal year to 2.8% from a previous 2.4%.
BOJ Governor Ueda said the certainty of achieving the inflation target is rising gradually, and the BOJ will cut bond buying at some point in the future.
Tokyo Apr CPI eased to +1.8% y/y from +2.6% y/y in Mar, weaker than expectations of +2.5% y/y. Apr CPI ex-fresh food and energy eased to +1.8% y/y from +2.9% y/y in Mar, weaker than expectations of +2.7% y/y and the slowest pace on increase in 19 months.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 25% for the June 14 meeting.
June gold (GCM4) Friday closed up +4.7 (+0.20%), and May silver (SIK24) closed down -0.101 (-0.37%). Precious metals Friday settled mixed. A decline in global bond yield today is bullish for precious metals. Also, persistent Middle East tensions are boosting demand for precious metals as a safe haven.
Demand for gold as a store of value increased Friday after the BOJ kept interest rates unchanged and said it would maintain its pace of bond purchases.
A stronger dollar on Friday weighed on metals. Also, Friday’s stock rally curbed safe-haven demand for precious metals. Gold remains under pressure as funds continued to liquidate their long gold positions after long gold holdings in ETFs fell to a 4-1/2 year low Thursday. Friday’s action by the BOJ to cut its forecast for Japan’s 2024 GDP is negative for industrial metals demand and bearish for silver prices.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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